DBS is well-positioned to weather China risks: Maybank KE

DBS Bank branchDBS Bank branch

While trade tensions may impact DBS’ earnings ahead, given its large exposure to North Asia, the bank is well-positioned to weather the risks, Maybank KimEng said in a note last week.

Over the past five years, Hong Kong and Greater China have made up around 25 percent of DBS’ profit after tax, on average, the note said.

But management has indicated a lot of its exposure in China is to other banks, lowering its counter-party risks, the note said.

“Given their low cost funding base there and exposure to high quality financial clients, we believe the group has a strong platform to perform,” Maybank KimEng said.

In addition, the bank has shifted toward sustainable, more visible earnings sources, instead of depending on volatile trading income, which should help it weather macro volatility, the brokerage said.

Around 70 percent of profit after tax, on average, has been from the Singapore market over the past five years, it noted.

“DBS’ entrenchment in its domestic market should provide an additional safety net in the face of macro risks in North Asia, in our view,” the note said.

It pointed to a “market-leading franchise” for low-cost current account-savings account (CASA) deposits, a large corporate banking operation and the larges domestic-bank wealth management assets under management, offering “significant” fee-income opportunities.

But based on macro risks and first-quarter earnings results, the brokerage lowered its 2019-21 earnings forecasts for the bank by 1 percent to 2 percent.

It lowered its target price for DBS to S$29.46 from S$29.26, keeping a Buy call.

In late April, DBS reported its first quarter net profit rose 9 percent on-year to S$1.65 billion as higher interest rates boosted its net interest margin and on strong growth in corporate loans.

Shares of DBS ended Friday down 2.60 percent at S$25.89; Singapore’s markets were closed Monday for a public holiday.


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